DEUTSCHE BABCOCK AG

1898–1942

Stock Index: Frankfurt

Deutsche Babcock is involved in machine engineering and plant construction through its subsidiary groups Deutsche Babcock Energie-und Umwelttechnik, Deutsche Babcock-Borsig, and Deutsche Babcock Handel. Its products include power stations and boilers, oil and gas firing equipment, nuclear-fuel-reprocessing components, air conditioning systems, refrigeration equipment, specialty steels and wire, copper pipes, cast-iron fittings, desulfurization systems, and water-treatment plants. The group's willingness and ability to maintain such a level of diversity says much for the expertise of its research staff, the continuity provided by having just five chief executives in over 90 years, the efficiency and productiveness--which means more than just productivity--of its workers, and the advantages it has gained from its presence, since the turn of the century, in the Ruhr district, at the heart of the German economy.

The company from which Deutsche Babcock originates was founded not in the Ruhr but in Berlin, and by non-Germans. In 1898, Robert Jurenka and Alois Seidl, immigrants from Bohemia in the Austro-Hungarian Empire, signed an agreement with officials of the British boilermaker Babcock & Wilcox to transform its existing Berlin Babcock sales office into a subsidiary of the U.K. Babcock & Wilcox. They purchased a factory in Oberhausen in the Ruhr district in order to manufacture the sectional boiler developed by U.S. engineers George Herman Babcock and Stephen Wilcox--from whom all three Babcock & Wilcox companies, in the United States, Britain, and Germany, take their names, although Deutsche Babcock now has no connection with either of the others. Their boiler was not only the most economical made at the time, but also the safest, since its chambers lacked the rivets or welds which made other models prone to explosion. Robert Jurenka served as president and chief executive of the company until his death in 1942, steering it with evident success through World War I, the social upheavals of 1919 and hyper-inflation, the rise of the Nazis, and the plunge into World War II. Having started with 30 employees, the company had 1,600 by 1927, producing boilers at Oberhausen and steam generators in the Gleiwitz works acquired in 1909. Under an agreement with the other Babcock companies, Deutsche Babcock expanded, not into Western Europe or overseas, but into the East, building a significant presence in Upper Silesia, which was then part of Germany, in Poland, and in the Soviet Union. Under Jurenka's leadership Deutsche Babcock achieved a record of concern for its workers that was good even by German standards, and which many in the United Kingdom and the United States might have envied. Its health insurance fund dates from the company's founding; supplementary pensions were introduced for its retired workers in 1938; it was the first company in Germany to introduce the five-day week, before 1914; and as early as 1930 the working week was 42 1/2 hours for blue collar workers and 40 hours for white collar staff.

Babcock--decided that profits coming from Germany were inadequate and sold its 25.02% of the company's shares carrying 33.92% of voting rights, to the Iranian government.

1921–1990

In 1945 Robert Jantscha, who had succeeded Jurenka as head of the company three years before, had to deal with the crisis caused by the bombing of much of the Oberhausen plant and the loss of business in Eastern Europe, after the transfer of Upper Silesia to Polish control and the imposition of Stalinism throughout the region. Deutsche Babcock began again by repairing agricultural machinery and, as soon as capital became available, expanding production on a one-million-square-meter site at Friedrichsfeld, which the company had bought in 1921. By 1960 the company, which at that stage had only six subsidiaries, employed 11,000 people in boilermaking and the building of boilerhouses and chimneys, and in the production of firing equipment, valves, and fans. The company produced a total of 150 products at that date, compared with 700 in 1990.

It is difficult to judge to what extent the course of Deutsche Babcock's development depended on the overall rise in prosperity in the Federal Republic of Germany, especially as the causes of the Wirtschaftwunder, or economic miracle, are themselves the subject of great and continuing controversy. Discussion, outside Germany, of the country's economic system, which involves both "concerted action" between government bodies and interest groups and Mitbestimmung--co-determination--between shareholders and workers, has perhaps tended to exaggerate their impact, especially on a company like Deutsche Babcock. Firstly, since coordination among the federal government, the state governments, and the main economic organizations was not made legally enforceable until 1967, the growth which predated it owed more to informal processes of consultation, under pro-business governments led by the Christian Democrats up to 1966, than to any imposition of a single framework from above. Secondly, co-determination was not legally prescribed outside the coal and steel industries until 1976. Its extension to all large and medium-sized companies meant that Deutsche Babcock had to allow half of the membership of its supervisory board to be chosen to represent its employees--including among the ten board members three full-time officials of I.G. Metall, the main trade union in the group. It seems likely, then, that Deutsche Babcock has benefited at least as much from successful industrial relations, internally generated, as from externally developed formal structures.

The company achieved considerable prestige in 1961, with the launch of Germany's first nuclear-powered vessel, the Otto Hahn, which was fitted with a reactor designed and constructed by Deutsche Babcock. This was its first major venture into the nuclear field. In 1963 the company was commissioned by the electricity-supply firm Nordwestdeutsche Kraftwerke to begin work on a power station based on the Advanced Gas-cooled Reactor (AGR) system developed by Deutsche Babcock's British associate. Nearly three decades later, after the decline of the U.S. nuclear-power industry, the Chernobyl disaster and its lingering effects, and the fiasco of the British government's attempt to sell off nuclear power stations which nobody wanted to buy, this departure appears to have been one of Deutsche Babcock's greatest mistakes, on commercial and environmental grounds. Yet at the time it may well have seemed that the power station order was a sign of general confidence both in Deutsche Babcock's technical expertise and in West Germany's ability to keep itself at the leading edge of industrial change.

1967–1987

By the mid-1970s the German nuclear-power industry was the subject of fierce competition between the Kraftwerk Union, formed by AEG and Siemens in 1969, and the consortium created in 1971 between the U.S. Babcock & Wilcox, Deutsche Babcock, and Brown Boveri. The oil crisis of the early 1970s made the industry's future look bright. Deutsche Babcock committed itself to a series of deals with Soviet companies for the supply, not only of nuclear-generating components, but of gas-pipeline equipment, cryogenic equipment, and a gypsum plant. Then, in 1978, the disaster at Three Mile Island, Pennsylvania, became a major embarrassment for the U. S. Babcock & Wilcox, which had built the nuclear power plant. The 1980s saw the ascension of the Green Party and Germany's biggest postwar demonstrations against the industry Deutsche Babcock had entered with high hopes only 20 years before.

The company had by no means put all its capital and research efforts into nuclear power, and the late 1960s and early 1970s were years of expansion and diversification into new fields, though the company still supplied 56% of West Germany's boiler market in 1972. After Robert Jantscha's death in 1967 his successor Hans Ewaldsen undertook a program of acquisitions within Germany and oversaw the increase in the share of foreign business in group turnover from 13% when he became president to over 50% in the 1980s. As of 1980, when the present structure of parent company and operating units was introduced, the group had nearly 80 subsidiaries, half of which were based outside West Germany. In 1975, in the midst of Ewaldsen's expansion program, the U.K. parent Babcock & Wilcox--now called F.K.I. Babcock--decided that profits coming from Germany were inadequate and sold its 25.02% of the company's shares carrying 33.92% of voting rights, to the Iranian government. Less than four years later the shah of Iran was overthrown, but the new regime retained the holding in Deutsche Babcock until 1987, when it was sold to a consortium of German banks.

By then Deutsche Babcock had come through several difficult years. In 1976 Ewaldsen had made public his concern that German makers of power-station boilers were becoming less able to compete on price with foreign corporations. Nevertheless the company continued to win orders for a variety of plant-construction projects from all over the world, including United Arab Emirates in the same year, Libya in 1978, Kuwait in 1980, and Iraq in 1981, demonstrating that the Iran-Iraq War was not at all bad for some European, American, or Japanese businesses. Meanwhile a virtual moratorium on nuclear power station construction in the Federal Republic of Germany, a general decline in power-industry orders, and foreign exchange difficulties over the Kuwait venture combined to force Deutsche Babcock to cut dividends in 1981 and withhold them altogether in 1982. Like other German companies in the mechanical-engineering sector, however, Deutsche Babcock continued to spend heavily on research and development and to seek new markets outside Europe, in competition with Japanese and American firms.

1983–1988

In 1983 Hans Ewaldsen became chairman of the group's supervisory board, and his place as president was taken by Helmut Wiehn. The new president, only the fourth in the group's history, came to office during a general upturn in the economy. This was reinforced, for Deutsche Babcock and its rivals, by the creation of a new market in air-pollution control systems initiated by the worldwide reversion from nuclear power to coal, and by the tightening of environmental controls in West Germany in 1983 and 1984. Between 1983 and 1988 the proportion of the group's sales designated as "environmental engineering" rose from 10% to over 25%. Whether because of social and political pressures or as a canny business venture--probably both--Deutsche Babcock's research-and-development funds now go mainly toward new technologies, not only for reducing emissions from coal-fired power stations, but also for controlling air pollution and improving water and soil quality. Another sign of the times is the making of cooperation agreements with engineering companies in Czechoslovakia and the Soviet Union during 1988, placing Deutsche Babcock alongside many other German firms in the newly opened markets of Eastern Europe, and, indeed, bringing the group back to territories in which it was first involved over half a century ago. Both in its home market and increasingly beyond it, Deutsche Babcock is well-prepared for the economic and social changes of the 1990s.